Operation Chokepoint: Long Distance Runaround*

With a nod to pop music, veteran John Byrne’s blog scans the anti-laundering and anti-terrorism world. John pierces silliness and inconsistency, and strongly believes in private-public partnership.

There is a scene in the 1970s spy thriller, “Three Days of the Condor,” where the John Houseman CIA character tells Higgins, played by Cliff Robertson, that he misses the period of time during World War II.

Not because of the casualties, the CIA man says, but because of the “clarity” of which side you were on.

Clarity is certainly lacking today in AML compliance.

As we approach the close of conference season, at least until the fall, the concerns of compliance officers continue unabated. In London last week, the European AML community at the ACAMS program bemoaned regulatory inconsistency in the same manner as their U.S. counterparts. Delegates discussed how to address governmental focus on tax evasion, sanctions, and cyber threats and voiced their confusion on what exactly was expected of financial institutions.

Funny how regulatory oversight challenges know no boundaries—it is a global puzzle.

Operation Chokepoint—adding to the madness

On the one hand, Comptroller Thomas Curry tells many AML audiences to avoid “derisking” customers:

“Higher-risk categories of customers call for stronger risk management and controls, not a strategy of total avoidance.”

A very fair and reasonable directive, but …

On the other hand we recently have learned of “Operation Chokepoint”—a Department of Justice program, created in 2013, focusing on banks and payment processors and apparently designed to combat mass market fraud. However, a recent House report concluded:

“Operation Choke Point has forced banks to terminate relationships with a wide variety of entirely lawful and legitimate merchants. The initiative is predicated on the claim that providing normal banking services to certain merchants creates a ‘reputational risk’ sufficient to trigger a federal investigation. Acting in coordination with Operation Choke Point, bank regulators labeled a wide range of lawful merchants as ‘high-risk’—including coin dealers, firearms and ammunition sales, and short-term lending. Operation Choke Point effectively transformed this guidance into an implicit threat of a federal investigation.”

ABA President Frank Keating recently wrote an op-ed piece on this debate and pointed out that “the government is compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties.”

So what should compliance and risk managers do to handle these seemingly diametrically opposed concepts—risk management or run for the hills?

Hate to say this, but I haven’t a clue.

Look, it is clear that there are some, dare I say, sleazy businesses that prey on consumers. But there are laws and regulatory initiatives created to attack those fraudsters or worse. It also is disquieting that the Justice Department is seeking account exiting before the entity commits any crime.

Let’s not ignore industry vigilance: Elder abuse, human trafficking, all forms of financial crime are on the radar of most compliance professionals. Staying current with law enforcement case studies, government reports, or other public actions is a must and can assist with advancing an institution’s due diligence and controls.

But having the government threaten an institution because of the so-called reputation risk of certain entities flies in the face of the globally recognized risk-based approach.

Future of risk-based approach

Now some of you know I have already opined that the risk-based approach is not working because of changing regulatory expectations. If you disagree with me on that premise, certainly Operation Chokepoint should move you closer to my way of thinking.

How can we rationally look at today’s AML related challenges—MSBs, virtual currency, and marijuana businesses—if we find no comfort with a true risk-based approach? If we layer on the media attacks to hold individuals liable for compliance missteps, who in their right mind would stay in Compliance?

A final thought on this debate: Currently it appears that opposition in Congress is coming mostly from one political party, even though the businesses being targeted are many and varied.

I would ask what is to prevent the government from targeting other businesses that may be deemed “political”?

Right now it appears that the political Right is concerned with this program but that could change. There should be bipartisan support for a dialogue on risk and regulatory or legal oversight.

John Byrne is Senior Advisor to the Advisory Board of the Association of Certified Anti-Money Laundering Specialists and Vice-Chairman of AML RightSource. ACAMS, with more than 70,000 members, develops anti-money laundering/sanctions/financial crime detection programs and certifies specialists in financial and non-financial businesses and government agencies. Byrne is a nationally known regulatory and legislative attorney with over 30 years of experience in a vast array of financial services issues, with particular expertise in all aspects of regulatory oversight, policy and management, anti-money laundering (AML), privacy, and consumer compliance. He has written hundreds of articles on AML; represented the banking industry in this area before Congress, state legislatures, and international bodies such as the Financial Action Task Force (FATF); and appeared on CNN, Good Morning America, the Today Show, and many other media outlets. Byrne has received a number of awards, including the Director's Medal for Exceptional Service from the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and the ABA's Distinguished Service Award for his career work in the compliance field. His podcast, "AML Now" (on ITunes) received a 2017 Communicator Award for hosting from the Academy of Interactive and Visual Arts. Byrne's blog on AML and Fraud on BankingExchange.com received a Gold Hermes Award in 2016. John received the ACAMS Lifetime Service Award in September. Byrne can be e-mailed at [email protected]; and don't miss John's updates on Twitter! You can find him at @jbacams2011.